Slow and Steady Says the Bank of Canada

At the end of 2017, the Canadian economy was described as very close to capacity. As that year drew to a close, economic growth hit 3%. Then things slowed down since then due a number of factors.

One was anxiety over international trade, mostly due to President Trump’s threats to impose various tariffs and renegotiate NAFTA. This caused many Fort McMurray businesses to slow down investment, though they’re currently running at capacity. If they aren’t investing more in equipment and material, they can’t expand and lead to further growth. Transportation bottlenecks are also an issue in places like Fort McMurray and throughout industrial canadian cities.

Oil prices in Fort McMurray remain strong, contributing significantly to GDP, but non-energy exports are sluggish and contributing almost nothing to GDP due to high imports. The Bank thinks that Canada’s GDP will be a third of a percent lower due to the negative impact of slowing exports alone. Conversely, fiscal stimulus from provincial budgets is expected to add 0.4% to Canada’s GDP by 2020.

Canadian businesses providing services to international customers continue to do well, but they’re hindered by a tight supply of skilled labor and high labor costs relative to the competition. Canada’s minimum wage increases are expected to have a transitory impact on inflation in the short term but not significantly affect inflation in the long term. Canada’s job market is on a tear; unemployment is at a forty year low, hovering just under 6%. Labor participation rates are going up, too.

The housing market in Fort McMurray is slowing down by design, but it may crater and take part of the Canadian economy with it; which makes it an interesting time to buy. Contact your Fort McMurray Mortgage Broker today to secure rates at an all time low. New mortgage regulations and other factors explain why the economy’s performance was weaker than expected in the first quarter of 2018. (It was 1.3%.) The central bank, however, says it expects the economy in Fort McMurray to rebound in the latter half of the year. GDP figures for 2018 have been lowered from the initially forecast 2.2% to 2.0%.The estimated growth rate for 2019 is 1.8%.

Right now, benchmark interest rates in Fort McMurray will remain at 1.25%. Governor Stephen Poloz said that inflation was at two percent. Note that this is after several years of inflation rates below the 2% target. Governor Poloz said, “That’s a good starting point because that’s the destination.” If the economy does indeed rebound, then there’s a reason to raise interest rates. The Bank of Canada clearly expects it to rev back up, bringing back the threat of higher inflation. The Bank said, “Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.”

The Bank of Canada is trying to carefully balance the normalization of interest rates, currently at historic lows, with the risk of causing another economic downturn if they raise them too much. They could guarantee a recession if they raise the rates too fast, given how indebted the average Canadian household is.

Experts are giving the odds of an interest rate hike in May as 50-50. Nearly everyone expects a rate hike by July. A majority consensus says interest rates will go up by a quarter point twice by the end of the year. A few think that interest rates will only go up once in 2018.